US Sea Freight Market Update

4. October

UPDATE 4 OCTOBER, 2021

Sea Freight

‘Desperation,’ disruption behind wider high-low container spot rate spread

Base spot rates on the trades out of Asia are reaching new highs every week, with huge surcharges piled on top. There is a growing variance within the soaring spot rates being paid by shippers on the trans-Pacific and Asia–North Europe, with cargo owners scrambling for vessel space as container shortages and port congestion at both ends of the trade cut available capacity.

Ships are backing up in Asia and at major US and European import gateways, delaying the turnaround of vessels and empties and driving up the spot rate. However, the range between high and low spot rates is huge and accompanied by carriers levying hefty surcharges to guarantee space and equipment, shipping analysts say.

Base spot rates on the trades out of Asia are reaching new highs every week, but within those rate levels there is a significant spread between what shippers pay at the upper and lower ends of the scale even before the surcharges to guarantee loading are applied.

In the past, looking at the volatility of the last decade, a typical Asia to Europe 40-foot container has usually been around $2,000, with peaks of maybe $3,000 and ultra-lows of $500. We see the $25,000 rate on offer, although that doesn’t mean this is the average paid rate. But there has never been an upward trend like what we are seeing today.

Surcharges vary between individual carriers but can be as much as the base rate. Carriers are charging premiums of up to $10,500 per container to guarantee loading on trans-Pacific routes and up to $4,000 per TEU on Asia-Europe.

These charges are on top of the Asia–US West Coast short-term rate of 32 days or less that is currently at an average of $8,327 per FEU, a level that is six times the average pre-pandemic 2019 rate at this point. There is a spread of $9,300 between the highest and lowest rates being paid by shippers.

The average Asia–North Europe short-term rate is at $7,768 per TEU, more than nine times that of 2019, with a more than $4,000 per TEU spread between the upper and lower rates being paid by the market.

Negotiating a ‘crazy market’

The culprit is demand outstripping supply, especially on the trans-Pacific, and severe congestion at ports in the US, Asia, and North Europe, combined with bottlenecks in inland logistics chains that are sucking capacity and equipment out of the major trades. This is pushing up spot rate levels and leaving carriers struggling to manage the excess volume.

An industry specialist stated: “When you have thousands of clients in a crazy market like this, as a carrier you need to make very, very tough decisions on who to service at what point every single day, because some cargo will need to be rolled over and some cargo must be on the ship,”  

Air Freight

Prepare now for a very challenging air freight peak, urges Tiaca

The air cargo industry has urged governments and stakeholders to prepare for what is expected to be a highly challenging air freight peak season.

The International Air Cargo Association (Tiaca) said yesterday that the industry is facing “unprecedented challenges” in the fourth quarter, with demand easily outstripping supply.

Noting that port congestion, delays and the rising costs of sea freight are sending desperate shippers to air freight, Tiaca said that combined with online shopping events, as well as the traditional peak, “the stress on the system is expected to grow substantially”.

It urged the industry to prepare, especially in the face of Covid-related restrictions on workforces, particularly in Asia.

“Such restrictions are causing cargo to be disbursed across neighboring countries and airports, causing further challenges. Shippers are therefore encouraged to work with forwarder partners to secure required capacity as early in the cycle as possible.”

An expert said: “Charter rates are through the roof and capacity at a premium – you need to be resourceful to find solutions for customers including passenger freighter capacity – providers are pulling rabbits out of hats for our customers.”

Tiaca not only urged air cargo’s customers to plan as early as possible, but also tasked governments with helping relieve the situation.

“Governments are urged to fast-track ad hoc charter permits and consider supporting seventh freedom regimes where they are being implemented.

“States are also urged to work with industry representatives to identify in advance potential system blockages in order for them to be addressed before they further impact supply chains. Supply chain disruptions are already being experienced in certain markets and the situation is projected to worsen.”

Rising passenger numbers have meant that some of the passenger freighter capacity has left the market, but much of that is now on domestic or tourist routes, minimizing belly usage.

Tiaca said the industry needed to act too, and “adopt efficiency tools such as enhanced data sharing as a matter of urgency”.

“Contingency plans must be established to deal with all eventualities that may arise. The key to success is planning and communication.”

Steven Polmans, Tiaca chair, said: “Planning must start now. Resourcing and capacity will be issues, handling and facility space will be an issue, delivery and drivers will be an issue. We should be proud of the innovative, agile and flexible approaches adopted by the industry these past 18 months and now we must equally rise proactively to these new challenges as the weight of customer expectations mount.

Air cargo handlers face staff shortages on both sides of the Atlantic

Fluctuating volumes, pandemic-induced government support schemes and staff shortage woes have left ground handlers facing “very different labor dynamics” across networks.

“In the US, volumes have strongly recovered but unemployment benefit schemes have been a disincentive for some staff to return to the workforce,” an expert said.

“As such, we have temporarily increased pay at many stations to make sure we have staffing levels required to provide our services safely. While we did furlough staff in the early stages of the crisis all have been recalled and we are now recruiting in many cities.”

Latest figures from the International Air Transport Association (IATA) note that North American carriers posted a 20.5% increase in demand in July compared to July 2019.

In line with June’s equally strong figures (19.8% increase), North America was the strongest of all regions as new export orders and demand for faster shipping times underpinned the regional performance. Handlers struggle to staff this demand, noting US staff levels are “fast approaching” pre-pandemic levels.

The divergent situation builds into difficulties experienced in other parts of the globe, with a spokesperson for German airport services company saying in August that ongoing freighter services were proving particularly difficult for handlers. “A lot of staff is necessary to handle many small and loose shipments that are frequently transported in freighter aircraft,” said the spokesperson.

“In addition, airlines currently operate very flexible schedules, with changes frequently at short notice. The cargo sector has seen a rise in ad-hoc charter services. As a result of these structural changes, traffic tends to be heavily concentrated during several peak times.”

Resultantly, these peaks are experiencing traffic equivalent to 2019 levels requiring a large quantity of staff to handle these “sudden sharp increases in demand”.

While the airport operator began the gradual reduction of short-time work for handling staff, it acknowledged that the sharp peak periods was leading to heightened demand for more staff, and consequently it had commenced a recruitment blitz.

 

UPDATE 28 SEPTEMBER, 2021

Unprecedented import volumes to continue well into 2022

A lack of vessel capacity in the trans-Pacific and a shortage of chassis are not expected to show signs of easing for at least six months, but even then, US import pressures will continue to slow velocity through ports, rail ramps, and warehouses.

Estimated 400,000 TEU are sitting there off the coast in Southern California. The way to solve this is to clear the bottlenecks, and the solution is landside. A record 56 container ships at anchor awaiting berthing space, and an additional 31 container ships at berth being worked. The Los Angeles Port Optimizer on Tuesday, September 21, listed the average time of vessels at anchor at 8.5 days. Los Angeles-Long Beach accounts for 50 percent of US imports from Asia according to statistics. Unprecedented import volumes for 14 consecutive months are causing the vessel bunching, while bottlenecks at warehouses and inland rail hubs are also contributing to port congestion. It is assumed that North America will not begin to experience relief from this peak until late in the first quarter of 2022 as production in Asia slows down when factories shut for the annual Lunar New Year celebrations.

Port congestion sapping major Asia-US ship capacity injection

The double-digit increase in capacity in the eastbound trans-Pacific will most likely further aggravate congestion at major US gateways. Container lines are increasing capacity on the Asia-US trades by double-digit percentages, but port congestion in Asia and the US is blunting the actual capacity available to shippers, keeping upward pressure on rates. Container lines this month began upping their deployment of trans-Pacific capacity, with approximately 22 percent more capacity available to the West Coast through December than was available in March through July. Carriers are also adding approximately 14.4 percent more capacity to the East Coast through year-end. However, the double-digit increase in capacity is likely to further stress ports that are already contending with vessel bunching in the early days of peak shipping season. The ports of Los Angeles and Long Beach provide an egregious example of vessel bunching, but other ports, including Oakland, the Northwest Seaport Alliance of Seattle and Tacoma, Savannah, and New York-New Jersey have contended with vessel bunching on and off over the past few months.

Asia-US ocean reliability falls to new low

Asia–North America vessel on-time performance in October plunged to 32.1 percent to the West Coast and 34.5 percent to the East Coast. Eastbound trans-Pacific ocean reliability plummeted in September to its lowest since data collection began in 2011 as carriers rapidly expanded their capacity to meet growing cargo demand, contributing to mounting congestion at the ports of Los Angeles and Long Beach. Vessel on-time performance in the Asia–North American trade plunged more than 14 percentage points from September to 32.1 percent to the West Coast and 34.5 percent to the East Coast, according to the Global Liner Performance report from Sea-Intelligence Maritime Analysis.

 

US Domestic

Chassis shortages are contributing to landside congestion not only in Southern California, but also in the Southeastern ports of Savannah and Charleston and at inland rail hubs such as Chicago, Memphis, and Kansas City. In the Southeast, the “street dwell” of chassis with containers sitting on them has more than doubled from 6 days recently to about 15 days.

Congested warehouses in the Southeast, as well as truck capacity and chassis shortages in the region, are making it difficult to move imported containers from the ports to the warehouses, and from warehouses to retail stores. It’s about the surge of cargo and slow turn times and the depleted chassis supply.

Containers that move by rail to the inland hubs are also backing up because of congested ramps. At some ramps, the railroads prefer to keep the containers on chassis. If the railroads would stack containers on the ground, it would free up the chassis for more trips and open the yards for additional train arrivals, but the railroads at some locations resist these measures.

The 1.8 billion square feet of warehouse and industrial space in Southern California has been operating at capacity for weeks due to the crush of imports, as well as labor shortages at the warehouses. As a result, the average street dwell time for 40-foot chassis in Southern California this week is 8.5 days, Chassis shortages begin to surface in the region when the dwell time exceeds four days. The US chassis supply nationwide is stressed and will likely remain so well into 2022.